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The Ultimate Comparison – SEP IRA vs Solo 401(k) – Episode 433

Adam Talks

On this episode of Adam Talks, Adam Bergman, Esq. discusses the Solo 401(k) and the SEP IRA, and which plan is the ultimate retirement plan for the self-employed.

The Ultimate Comparison – SEP IRA vs Solo 401(k)

On this episode of Adam Talks, IRA Financial’s Adam Bergman discusses the comparison between a SEP IRA and a Solo 401(k) for small business owners. Bergman, a tax attorney, explains the key features and benefits of each retirement plan. The SEP IRA is a profit-sharing plan that allows businesses, including sole proprietors, to contribute up to 20% of net income to all eligible participants. On the other hand, the Solo 401(k) offers higher contribution limits, including employee deferrals, and is deemed a more favorable option due to its flexibility and features like the Mega Backdoor Roth option.

Bergman emphasizes the advantages of the Solo 401(k) over the SEP IRA, particularly in terms of maximum contributions, employee deferrals, and the ability to make Roth contributions. The Solo 401(k) allows for higher contribution amounts, a loan option, and the Backdoor Roth option, making it a preferred choice for small business owners seeking to maximize retirement savings. Additionally, the Solo 401(k) offers checkbook control, asset protection, and the option to use leverage without triggering UBTI tax when investing in real estate.

Furthermore, eligibility criteria for setting up a SEP or Solo 401(k) are highlighted, with the Solo 401(k) requiring businesses to have no full-time employees other than owners or their spouses. Bergman underscores the importance of consistent savings and trusting the retirement planning process, emphasizing that it’s never too late to start saving for retirement, with the Solo 401(k) offering a way to catch up on savings for those starting later in life. The flexibility and potential for higher contributions make the Solo 401(k) a compelling choice for individuals looking to secure their retirement future.

The episode delves into the details of how contributions work for each plan, outlining scenarios where the Solo 401(k) outperforms the SEP IRA in terms of maximizing contributions and tax advantages. Bergman provides examples to illustrate how the Solo 401(k) can significantly increase retirement savings compared to the SEP IRA, especially for those under 50 years old. Additionally, the Solo 401(k) offers Roth contribution options, a loan feature, and the ability to invest in real estate with leverage, making it an attractive choice for business owners wanting to enhance their retirement funds.

In conclusion, Bergman recommends the Solo 401(k) as the superior retirement plan for small business owners due to its higher contribution limits, enhanced features like employee deferrals and loan options, and potential for tax advantages such as the Mega Backdoor Roth option. While acknowledging the benefits of a SEP IRA, Bergman emphasizes the overall robustness and flexibility of the Solo 401(k) in providing a comprehensive retirement savings solution. By choosing the Solo 401(k), individuals can secure their financial future with a plan that offers greater customization, investment options, and opportunities for maximizing retirement funds over time.

Overall, the episode serves as a detailed comparison guide for small business owners deciding between a SEP IRA and a Solo 401(k) for their retirement planning. It highlights the key differences in contribution limits, eligibility requirements, and features of each plan, with a focus on the advantages offered by the Solo 401(k) for those seeking to optimize their retirement savings strategy. Bergman’s insights and examples provide valuable information to help individuals make informed decisions about selecting the most suitable retirement plan based on their financial goals and circumstances.


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